What rising interest rates mean for church investment portfolios
Churches invest for a purpose. Whether supporting annual ministry, funding scholarships, maintaining facilities, or building an endowment for future generations, investment decisions are ultimately connected to the church’s calling and financial responsibilities.
This connection is particularly important in a changing investment environment. During the third quarter of 2026, rising bond yields created challenges for fixed-income investors, reminding us that even traditionally more conservative investments can experience fluctuations in market value. However, periods like this one also offer opportunities to evaluate investment performance, consider the benefits of diversification, and remain focused on long-term objectives.
The Bond Fund Demonstrates Resilience
In a challenging bond market, the Foundation’s Bond Fund has demonstrated resilience and outperformed its benchmark. Through September 30, 2026, the Bond Fund delivered a year-to-date return of -1.47%, outperforming the U.S. Aggregate benchmark by 1.44 percentage points. The benchmark returned -2.91% over the same period.
This relative performance is particularly noteworthy in an environment where rising interest rates have put pressure on bond prices. As yields increase, existing bonds generally decline in market value, creating headwinds for fixed-income investors. Against this backdrop, the Foundation’s Bond Fund has held up better than the broader benchmark, highlighting the importance of thoughtful portfolio management and disciplined investment decisions.
Higher yields also create opportunities for the future by allowing newly purchased bonds to generate greater income. While interest rate movements will continue to influence returns, higher starting yields may strengthen the income potential of fixed-income investments over time.
A Balanced Approach to Investing
The Foundation’s Balanced Fund offers another encouraging perspective on investment performance. Through September 30, 2026, the Balanced Fund had a year-to-date return of 6.18%. The Balanced Fund maintains an allocation of 60% to the Stock Fund and 40% to the Bond Fund. This combination brings together the growth potential of stocks and the income and diversification characteristics of bonds. It is also the investment option chosen by a majority of our church investors.
The Balanced Fund’s positive return illustrates how different asset classes can contribute to a portfolio’s overall results. While bond market weakness has created challenges for fixed-income investments, the stock allocation has helped the Balanced Fund deliver a positive return over the same period. The purpose of diversification is not to eliminate risk but to avoid relying too heavily on any one source of investment return.
Let Your Mission Guide Your Investment Decisions
When markets change, it is natural to ask whether a church should shift more assets into bonds to reduce risk or increase its stock allocation in pursuit of greater returns. Neither decision should be made solely in response to short-term market performance. A church’s investment strategy should reflect what its funds are expected to accomplish.
How much does the church distribute each year? When might significant expenditures occur? How much fluctuation can the church reasonably tolerate? Must the portfolio provide support for decades, or will a substantial portion be needed in the near future? These questions help determine an appropriate balance among growth, income, liquidity, and risk. For instance, an allocation that works well for a long-term endowment may be unsuitable for funds needed to finance a building project in the next few years.
Investment reviews and discussions of different market scenarios can help church leaders understand the potential consequences of various allocation decisions. They also provide an opportunity to consider whether the current strategy remains appropriate as ministry needs and financial circumstances evolve. We believe that investment stewardship requires looking beyond short-term market movements. Our responsibility is to help churches consider their financial objectives, understand investment risks, and make thoughtful decisions that support their ministry.
Markets will continue to change, bringing both challenges and opportunities. A disciplined investment strategy, grounded in a church’s purpose and time horizon, can help leaders navigate those changes with greater confidence. Faithful stewardship means preparing for tomorrow while continuing to serve today.